Persian Gulf Tanker Rates May Surge as Storage Curtails Fleet

By Alaric Nightingale

Dec. 3 (Bloomberg) -- The cost of shipping Middle East crude to Asia may surge on accelerated bookings in anticipation of profit from higher oil prices in the future.

As many as 12 supertankers, each designed to hold 2 million barrels of oil, and four vessels half the size are booked with options to use them as storage, Johnny Plumbe, chief executive officer of London-based broker ACM Shipping Group Plc, said by phone today. February contracts for West Texas Intermediate oil, a global benchmark, are trading about 3 percent higher than January contracts.

The “market is on fire,” because of “storage caused by the low oil prices,” said Nikos Varvaropoulos, an official at Optima Shipbrokers in Athens. That’s cut supply and may have boosted the price an oil company paid by 20 percent compared with yesterday’s single-voyage, or spot, rental rate, he said.

Slumping demand for crude oil has created a pricing structure where futures prices are more than those for more- immediate purchase. That compensates traders who can afford to store barrels and sell them at higher prices in the future.

“This is a situation that only happens when oil price is in the situation where it is now,” said Plumbe, whose company specializes in tanker rentals and sales. “If you take enough ships out on storage, it’s going to affect supply and demand.”

Frontline Ltd., the world’s largest owner of very large crude carriers, or VLCCs, said Nov. 28 it leased out two vessels for storage and was working on a third such transaction. Crude oil prices in six months time are anticipated to be as much as $8 a barrel more than supplies for more immediate delivery, it said.

Rates Rise

Rates for VLCC shipments to the U.S. from West Africa gained 19 percent to 109.62 Worldscale points on Dec. 2, according to the London-based Baltic Exchange. They advanced at the fastest pace in at least nine-and-a-half years on Dec. 1.

There was speculation that one booking was concluded at 75 Worldscale points, Varvaropoulos said, adding that no details of the transaction have emerged. The Baltic’s rate for Saudi Arabian cargoes to Japan gained 0.6 percent to 62.73 Worldscale points.

Halvor Ellefsen, a broker at Sealeague AS in Oslo, said there was speculation about a booking at more than 70 points.

Worldscale points are a percentage of a nominal rate, or flat rate, for more than 320,000 specific routes. Flat rates for every voyage, quoted in U.S. dollars a ton, are revised annually by the Worldscale Association in London to reflect changing fuel costs, port tariffs and exchange rates.

Each flat rate assessment gives owners and oil companies a starting point for negotiating hire rates without having to calculate the value of each deal from scratch.

A rate of 62.73 works out at $39,497 a day, according to the Baltic Exchange. Globally the carriers are making $35,072 a day. Frontline said Nov. 24 it needs $34,700 a day to break even on each of its supertankers, a 10 percent gain from Aug. 21.

To contact the reporter on this story: Alaric Nightingale in London at Anightingal1@bloomberg.net